Xircom has reported strong earnings for its second quarter, but warned that short term revenue growth would be flat and could cause the company to miss analysts' expectations for the year.
The Belgian PC connectivity vendor reported sales for the quarter ended 31 March of $97.7 million, up 52 per cent on the year earlier period. Profit was up slightly on the year earlier period, reaching $10.8 million, or 42 cents per share.
But while Wall Street analysts expect Xircom to make revenue of $450 million for its current fiscal year, it has only made $194 million in the first six months. Worse still, the company has forecast flat revenue growth for the next few quarters.
"There is a lot of industry talk about Year 2000 slowdown - let's be cautious about revenue expectations," said Benny Can Calster, European marketing director at Xircom. "Let's keep revenue [forecasts] flat, let's focus now on profitability."
"We don't expect major major [revenue] growth, but expect higher profitability," said Can Calster. "If we would fall short, it would not be by much."
Xircom has increased its gross margin model up from its traditional level of 38 per cent to 40 per cent, to 42 per cent to 44 per cent.
During the last nine months, Xircom has more tightly controlled inventory flow into its Xircom branded channel. In the last two weeks of the second quarter, it extended this model to its OEM channel.
Xircom said it had shifted its sales and marketing focus away from the channel and towards end users. In the past its spending was split equally between the channel and end users, now 70 per cent of spend will be to end users.
"It's now more important for success in a highly competitive market to talk about branding to influence the pull side and create demand among end users," said Can Calster.
Key opportunities for Xircom are Mini PCI, an embedded technology for installing onboard modems and other devices in laptops, and handheld Windows CE devices. The company plans to roll out a new line of connectivity products specifically targeting Windows CE devices in the next three to four months.
The increasing popularity of in built modems in laptops has affected some PC card vendors' modem sales - notably Psion. But Xircom says it has seen no such downturn as strong demand has continued from the enterprise market.
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